Yahoo and Microsoft Said to Be Weighing Ad Pact

Yahoo and Microsoft, which held a marathon series of fruitless merger and partnership negotiations last year, have restarted discussions, this time over a possible advertising agreement, a person briefed on those discussions said Friday

Conversations between the two sides have been scant since Carol Bartz was named Yahoo’s chief executive in January. But they have started anew recently, and Ms. Bartz met with Steven A. Ballmer, Microsoft’s chief executive, last week, said the person briefed on the discussions, who agreed to speak on condition of anonymity because the talks were confidential.

Yahoo and Microsoft declined to comment.

The discussions are in early stages and may not lead to any agreement, the person said. They have centered on ways for the companies to pool their advertising efforts, including a possible partnership under which Microsoft would sell search ads for Yahoo, and Yahoo, in turn, would sell display ads on Microsoft properties, this person said.

After merger and partnership talks collapsed last year, Microsoft continued to make sizable investments in its search business to better compete with Google. Those investments included the hiring of a string of top search executives and engineers, some of whom had previously worked at Yahoo, including Qi Lu, a well-regarded technologist who is now in charge of Microsoft’s overall online business, including search.

Microsoft is expected to release the results of its latest research and development efforts in search technology this summer when it plans to introduce a major overhaul of its search engine.

Microsoft executives are bullish about the capabilities of the new service. But they readily admit that it does not address one of the principal challenges the company faces in competing with Google: Microsoft’s audience and its base of advertisers are tiny compared with Google’s. That makes Microsoft’s search business, in which advertisers bid against one another in an auction, less lucrative than Google’s.

A partnership that would pool Microsoft’s and Yahoo’s users or advertisers could go a long way toward addressing that problem, and could help create a more powerful No. 2 competitor to Google in search.